BY ANDREW GIOVINAZZI 

August 11, 2023 

Yo Pit Crazies,

I don’t normally talk about bonds, but sometimes they get to be a thing. Some of the biggest messes I can remember are problems in the bond market. As they say, the bond market is the dog and the equity market is the tail. Right now, the US Treasury is issuing bonds on a massive scale and at 20 year high interest rates.

The graph below of the iShares Barclays 20+ Year US Government Bond ETF (Ticker: TLT) is showing some very low prices and some very high yields. Historically that would bring in the buyers, but right now confidence – courtesy of Fitch – is very low on how the US government is conducting its business. I’m thinking some of the intraday volatility is linked to the bond auctions.

The real question is if they are coming for the volatility in stocks.

That means there’s some momentum somewhere.

A Change in VIX Zones is a Change in Sentiment

If you just hang around all day in Maine, the weather might change. Volatility is very much the same. It’s the most accurate market sentiment that I know of – and I’ve been doing this for a while.

Traders pay for momentum – a move in a direction that is sustained.  Volatility tends to underprice momentum and overprice an orbiting, up and down, market. Stocks right now are very much orbiting. The 4600 area is proving elusive and tough to get back too. I think there’s too much overhanging the market for fresh highs.

I think we orbit because VIX cannot get out of Zone 2, 14-18. That doesn’t mean we can’t just don’t think it happens today. I think traders kill VIX once the PPI is out since stocks don’t sell off.  That 30 day straddle gets expensive if SPX does not move.

To Your Trading Success,

AG